We measure cost and revenue efficiency of the Islamic and conventional Malaysian banks by using the stochastic frontier method and the meta-frontier analysis (MFA) over the period [2006][2007][2008][2009][2010][2011][2012]. The use of MFA allows for the correction of the efficiency measurement errors caused by the technological and operational gap. The specific as well as the common frontiers obtained by the stochastic frontier method show the superiority of Islamic banks (IBs) compared to conventional banks (CBs) in terms of cost and revenue efficiency. This can reflect their high managerial capability. Efficiency measurement using MFA partially revealed different results. CBs have higher annual averages of cost efficiency scores than those of IBs over the period 2006-2011. The observed evolutionary trends of these averages contradict those of the capital base. This change in results is explained according to Johnes et al. (2013) by the modus operandi of IBs which seems in average less efficient than that of CBs. As for revenue efficiency, IBs are more efficient than CBs over the entire study period even though the evolution of the technological gap ratio confirms the inefficiency of their modus operandi. These results may be useful to political decision-makers and regulatory authorities.
This study aims to test the contagion effect of the Arab Spring revolution in the GCC countries on discrimination between Islamic and conventional banks in terms of cost efficiency, and to test how prudential factors can influence this comparison. We used the stochastic frontier of Battese and Coelli (1995) to measure the cost efficiency of both Islamic and conventional banks in the GCC countries during 2006_ 2015 (before the Arab revolution 2006-2010 and after the Arab revolution 2011-2015). Second, we used a logit model to discriminate between Islamic and conventional banks in terms of cost efficiency combined with credit risk, regulatory capital and interest margin. Third, we finally test the convergence and divergence between Islamic and Conventional banks by measuring the probability of having Islamic/conventional activities for both banks. We have shown that there is no absolute difference in terms of cost efficiency between Islamic and conventional banks. This difference can be observed through the credit risk taking but not through the interest rate margin. In addition, Islamic banks have taken advantage from the event of the Arab Spring revolution, compared to conventional ones, by being more efficient through risk mitigating due to their participatory financial product. Unlike previous research, we have used a cost efficiency measurement following Battese and Coelli’s (1995) model and we have incorporated it in a logit model, in the context of crisis. Cost efficiency is combined with a set of prudential factors to determine their effect on the convergence/divergence between Islamic and conventional bank.
This research aims at comparing the efficiency of Islamic and conventional banks operating in the GCC countries from 2006 to 2015 for a sample of 51 conventional and 48 Islamic banks using stochastic frontier analysis and the CIR ratio. The results show that Islamic banks are less efficient in terms of cost than conventional banks, and that this result remains valid even during the 2008 crisis period and even after controlling for bank-specific variables. Regarding the determinants of bank efficiency, empirical results show that capital adequacy and size positively affect bank efficiency as measured by the stochastic frontier analysis. Results also indicate that productive assets are negatively related to efficiency as measured by the CIR ratio. This study provides new insights in terms of financial efficiency of the banking system. Findings could help Islamic and conventional banks to increase their efficiency and their performance and improve the service provided to customers.
In this paper, we examine the determinants of cost and revenue efficiency of Malaysian banks over the period [2006][2007][2008][2009][2010][2011][2012]. Three steps are undertaken to study a sample of 17 Islamic banks (IBs) and 20 conventional banks (CBs). In the first step, we assessed the competitiveness of the Malaysian banking sector. After solving the multicollinearity problem, as a second step, we selected three sets of independent variables: bank-specific, industry-specific and macroeconomic variables. In the last step, we estimated the efficiency models with the Feasible Generalized Least Squares (FGLS) method. The obtained results highlighted the importance of regulatory capital and size. As for the effect of competitiveness, it is found to be statistically significant only for revenue efficiency. These results may be useful to political decision-makers and regulatory authorities.
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